RHB Research maintains buy call on Genting Malaysia Bhd (GENM) with a target price of RM2.59, 23% upside with c.5% for the financial year ending Dec 31, 2020 forecast (FY20F) yield.
“The buy call comes as we believe GENM has reached its inflection point, where almost all its facilities have re-opened, boosted by encouraging business recovery,” said analyst Loo Tungwye.
“We recently visited Resorts World Genting (RWG), and the significant improvement in visitor arrivals seen reaffirms our positive view on the pace of recovery post-reopening.
“The gradual relaxation of social distancing rules was apparent at the casino, with 3-4 standing guests now allowed to place bets, in addition to those from seated guests.
“We believe the worst is over for GENM, and its current valuation is attractive to position for a cyclical recovery,” added Loo.
He further stated the site visit to RWG corroborated with the management’s earlier guidance that business recovery at RWG was encouraging.
The management, he said, had previously guided that daily visitor arrivals have increased by 50% since re-opening.
“While it has yet to reach pre-pandemic levels due to social distancing measures, we believe that it has reached an inflection point. With international borders still closed, RWG will benefit from domestic tourism, as Malaysians can only travel within the country.”
He believed GENM’s pace of recovery would further accelerate with the gradual relaxation of social distancing rules and the potential discovery of a vaccine.
According RHB Research, GENM clearly benefited from the cyclical recovery as its stock was still trading at a trough valuation of 5.5 times of enterprise value to earnings before interest, taxes, depreciation, and amortisation ratio for the financial year ending Dec 31, 2021 forecast (FY21F EV/EBITDA), ie at a more than 50% discount to its regional peer average of 12 times.
Furthermore, its generous dividends of 5% yield would serve as a support to the share price, and continue to reflect its sturdy balance sheet.
As at 12.09pm today, Genting Malaysia shares traded at RM2.14 with a market capitalisation of 2.71 billion. – Sept 22, 2020
